Ghost of 1997 returns to haunt Asian banks

Ghost of 1997 returns to haunt Asian banks

SINGAPORE (AFP): Asian banks still hurting from the crash of 1997 are again being burdened with nonperforming loans (NPL) amid an economic slowdown, and the global security crisis is compounding the situation, regional analysts said.

Even before the terrorist attacks on the United States, an overhang of NPLs from the financial crisis four years ago and a sharp decline in economic output and trade were putting fresh pressure on regional banks after a flurry of mergers and clean- ups.

Credit evaluator Standard & Poor's (S&P) warned last week that it was bearish on the short-term outlook for banks in emerging Asian markets, and noted that wealthier economies like Taiwan, Singapore and Hong Kong were also being affected by NPLs.

S&P said that almost without exception, the levels of NPLs held by banks in emerging Asian economies were "hardening and, in some cases, starting to rise."

Charles Adams, senior economic adviser at the Asian Development Bank (ADB) in Manila, said well-capitalized banking systems with adequate provisioning "should be able to manage this increase in NPLs quite well."

"We would be most concerned about those countries which are still restructuring their financial systems in the wake of the 1997-98 crisis. These countries have been making progress but have a long way to go in terms of rehabilitating their banking systems," he said.

Restructuring will be tougher in the current environment.

S&P has also cut outlook ratings on major Japanese banks, warning that "under the currently adverse operating environment, it is more likely that banks will face a faster growth of problem loans."

Japanese banks are under pressure to dispose of all non- performing loans in the next two to three years as part of a reform drive by Prime Minister Junichiro Koizumi.

S&P said that among the main victims of the 1997-98 crisis, Thailand "has made the most disappointing progress in terms of recovery."

It said non-performing assets -- loans overdue for three months, restructured loans and foreclosed properties -- were estimated at 48 percent of total loans at the end of 2000, just a few percentage points below the 53 percent at the end of 1999.

In Indonesia, the transfer of problem loans to the Indonesian Bank Restructuring Agency allowed banks to report an average NPL ratio of just 18 percent in 2000 but a portion of restructured loans is expected to revert to NPLs.

South Korea's slow pace in reforming "over-leveraged" conglomerates remains a structural impediment for the banking system, with falls in private consumption, fixed investment growth and semiconductor receipts posing problems for the economy and banks, S&P noted.

Malaysia "missed the boat" in terms of resolving NPLs left over from the 1997-98 crisis, with the gross level of NPLs returning to above 18 percent in the first half of 2001 from 16 percent at the end of 2000, it said.

S&P said the Philippines' high dependence on the U.S. economy has caused problems on top of the adverse events before President Gloria Arroyo took over last January from her ousted predecessor Joseph Estrada.

The banking industry's ratio of non-performing assets is estimated at about 25 percent, and falling economic growth points to "a further deterioration of loan quality," S&P said.